COP26: Collaboration is key to achieve net-zero targets

This has already been identified as one of the main goals ahead of the conference, with the UN stating: “Governments, business and civil society […] need to work together to transform the ways we power our homes and businesses, grow our food, develop infrastructure, and move ourselves and goods around.” 

This concept can be extended to the pensions industry. Amanda Latham, associate and policy and strategy head at Barnett Waddingham, says this puts the onus on co-operation between different groups of investors.

“Net zero is a global problem that needs global solutions and action from everyone, from investors and companies to governments and policymakers,” Latham says.

She adds that this requires “working with developing nations with large manufacturing bases, as well as emerging economies whose development cannot follow a path of swift industrialisation and increasing emissions”.

If all institutional investors realise they can make an impact regardless of their size by collaborating, it will encourage them to be more involved and together they can achieve more

Vineet Sood, Dalriada Trustees

Open to collaboration

This is a view with which many in the pensions industry agree. A Twitter poll conducted by Pensions Expert asked how the industry feels about the statement: ‘Institutional investors are more powerful when they come together’.

The majority, at 71.4 per cent, agree that joining forces is “the best way to [bring about] change”, while the remaining 28.6 per cent also concur with the statement, while recognising that it will require “compromise”.

“The results showing investors are open to collaboration is a helpful indicator as we head towards COP26, as one of the critical areas needed to deliver on net zero is collaboration and collective action,” Latham adds.

In its climate pledge published at the start of 2021, Hymans Robertson identified collaboration as one of its core beliefs, underpinning how tackling climate change should be approached.

The investment consultancy states: “Climate change is an issue for our whole society and not something we can tackle alone. To be most effective, we need to engage with other leaders in this field.”

In response to Pensions Expert’s Twitter poll results, Hymans Robertson’s head of responsible investment, Simon Jones, says he is “unsurprised to see that others in the industry have a similar view on the benefits of working collectively”, and that there are two main benefits for investors of collaboration.

“First, is one of working towards a common goal and, while investors may begin with slightly different objectives, what is more important in creating change is to set the right direction of travel as there will always be issues on which most collaborators agree,” he says.

The second benefit is “more practical”, given that stewardship “takes time and it is often the case that any single investor will not have the resources to achieve everything they want”.

“By working with other like-minded investors, the collective resource is increased, but also the strength of the underlying investor base that the resource speaks on behalf of is amplified, giving greater force to engagement efforts,” Jones adds.

This collaboration is already happening in pockets of the industry.

A group of 12 investment consultants, including Cardano, Hymans Robertson and Willis Towers Watson, have formed a net-zero initiative that has received endorsement from the UN’s Race to Zero campaign and the Principles for Responsible Investment.

Among the nine action points set out by the group is a commitment to “assess and monitor asset managers on the integration of climate risks and opportunities in their investment decisions and stewardship, and reflect this evaluation in client recommendations”.

Separately, another group of pension investors wrote to the UK minister for COP26, Alok Sharma, calling on the government to compel companies and auditors to file financial accounts aligned with global net-zero emissions targets. Brunel Pension Partnership, Candriam and the Local Authority Pension Fund Forum were among the investor groups that signed the document.

Learning to compromise

This is only the start and experts warn that there will be a need to overcome competitive barriers, and a willingness to compromise, to achieve these goals. Communication will be key to this success, according to Vineet Sood, investment specialist at Dalriada Trustees, who adds that open-minded collaboration between institutions will “encourage more open discussions”.

Developing this cohesive view could take some time, says Sood, who advocates collaboration efforts to be proactive and realistic about what is required to get agreements made and over the line.

“Forming a cohesive view could take time if there are opposing views on any particular issues, which will slow progress unless compromises are being made. Creating any committees to co-ordinate efforts could also take time and there are likely to be costs associated with it,” he says, warning firms not to settle for diluted impacts by “by trying to achieve a consensus action”.

However, he adds: “If all institutional investors realise they can make an impact regardless of their size by collaborating, it will encourage them to be more involved and together they can achieve more.”